Active Investing in Japan

Volkswagen has applied to delist from the Tokyo Stock Exchange, citing low trading volume and its plans to also delist from some European exchanges. This continues the TSE’s trend of losing (and not being able to replace, at least for the time being) overseas listings. There will now be only 25 foreign companies listed on the TSE. 1991 was the peak year for overseas listings when there were over 100. Among the remaining American firms with listings the last time I checked are AFLAC, AIG, Bank of America, Boeing, Dow Chemical, JP Morgan Chase and Merrill Lynch.

Next January, the Tokyo Stock Exchange will actually gain a new listing, as Citigroup plans to list shares as part of its broader Japan expansion strategy in conjunction with its acquisition of Nikko Cordial. In fact, Citi is planning a share exchange for the remaining 32% stake of Nikko Cordial that it doesn’t already own, in effect making it the first company to take part in a triangular merger, an acquisition method which has only been allowed since May of this year. Now that Citi has broken the ice, there’s speculation more triangular mergers are on the horizon.

Japan market summary for Wednesday (Oct. 10)
Nikkei 225 Stock Average: +17.99 (+0.1%) to 17,177.89
Nikkei 225 futures Osaka: +30 (+0.2%) to 17,230, Singapore (SGX) +25 (+0.15%) to 17,225, Chicago (CME) *10/9 +20 (+0.1%) to 17,310
TOPIX: -1.88 (-0.1%) to 1,658.18; Advancers 706 x decliners 863 (unch. 153), New highs 26 x new lows 10
Jasdaq: +0.52 (+0.0%) to 1,902.44
Yen: mostly flat against US$ at 117.25 level late in Tokyo; weakened 0.7% against euro to 165.80 level
Notes: For the first time in a long time the emerging indices MOTHERS and HERCULES traded to the downside, -1.7% and -1.0%, respectively. The Bank of Japan met in day one of two of its rate policy meeting. Market-moving August machinery orders are due out early Thursday. Sony Financial Holdings also begins trading Thursday. Despite U.S. benchmark indices hitting new all-time highs, the Nikkei 225 Stock Average failed to hold onto early gains where it traded around 17,250, partially due to a lack for foreign investor buying and also because of the BOJ decision and machinery orders report Thursday. A Bloomberg poll of 39 economists shows a unanimous outlook for the BOJ to hold the key interest rate at 0.5%.

This post probably about does it for now in terms of looking at the Japanese mutual fund universe in the U.S. For reference, also see:Cash Inflows/Outflows in Sept. for Largest Japanese Mutual Funds in U.S. and Ranking of Japanese Mutual Funds in the U.S..

Among the 8-largest funds reviewed in each of the two prior posts, there were a number of similar holdings among the top-10 components of each fund. This is not exactly surprising since (1) these companies are the largest in Japan based on market-cap and (2) most/all of them had posted big gains through early 2006, making them must-haves for portfolio managers. If these large cap blue chips rally in Q4 and into 2008, then these funds will likely do quite well. If not, it could be a continuation of the frustration felt in much of 2007.

Toyota is the top holding for four of the eight-largest funds and also held in two other funds. Nintendo is the second-largest holding in three funds. Mizuho Financial Group is the third-largest holding in three funds and also held in another fund. Sumitomo Mitsui Financial Group is the second-largest holding for two funds and is held in three other funds. Mitsubishi UFJ Financial Group and Sony are each the largest holding of one fund and held in another. Canon is held in three funds. Nomura Holdings and Komatsu are held in two funds. Sumitomo Metal Industries is held in four funds.

Yahoo! Finance has updated the net assets for mutual funds, reflecting amounts as of the end of September. Yesterday, the list and ranking of Japanese mutual funds in the U.S. had data as of the end of August. Changes for the 8-largest funds are listed below with the new net asset value and % change in {}. Notice $30M, or about a 2% inflow for #1 (by size) Fidelity Japan (FJPNX). On the opposite end, T. Rowe Price Japan (PRJPX) had almost $30M of outflow, or a 6.5% decline.

[Ticker] [Fund Name] [Net Assets ($m)]
1. FJPNX � Fidelity Japan � 1,720.000 {$1,750.000, +1.7%}
2. FJSCX � Fidelity Japan Smaller Comp. � 807.070 {$806.070, -0.1%}
3. PRJPX � T. Rowe Price Japan � 446.090 {$417.140, -6.5%}
4. SJPNX � Japan S � 364.060 {$370.230, +1.7%}
5. MJFOX � Matthews Japan � 235.080 {$235.080, unchanged}
6. SPARX � SPARX Japan Institutional � 85.470 {$85.890, +0.5%}
7. FJESX � DWS Japan Equity S � 85.360 {$83.360, +1.2%}
8. HFJAX � Henderson Japan-Asia Focus A � 57.450 {$56.270, -2.1%}